The Various Ways An Investor Can Get Into Oil Investments Business

Oil business is a lucrative venture to some traders as they have made a lot of money from this sector. This commodity is the most demanded commodity as the commercial sector cannot survive without it. Half of the plastic products are made of petroleum and almost half of the worlds industries are driven by oil related by products. So oil investments is an attractive venture to many business men.

Investors are recommended to evaluate the project risks and the associated benefits. If the risks outweigh the benefits then an investor should consider backing out of such projects. Always a good project is one that minimizes cost while maximizing on revenue.

The investors with such goals only need to purchase stock from any oil company, there is no direct participation. Also there are those investors with long term goal in mind. They are risk takers and are not worried of price fluctuations as their ultimate goal is to expand their firms. They require huge capital investment and they go for a period of more than five years.

Long term traders take heavy risks as they stick around during the downs and ups of stock prices, they take all the losses when prices go down and enjoy all profit when prices shoot up. An investor who want to get into this business should first identify the right entry points or alternatively they can get directly involved through exchange traded deposits.

One of these technique include payback period, which solutions the issue of how long it will take for an investor to get back money invested. Then there is the net present value technique which takes into consideration time value of money. It equates future cash flows to present value and matches it against the initial cash outlay. If the resultant figure is positive and greater than one then an investor can go ahead and invest.

This commodity powers most of the gadgets people use at their home, from cooking appliances, cars, gadgets to electronics and lights utilized both at offices and at homes. All this are used on daily basis and are powered by this commodity. Although it seems to be an attractive venture, it has some negative effects.

These risks include political risk, this risk arise when the political group come up with rules and regulations that are unfair to the investors. But this is not the only way these politics affect oil sector. Energy companies operated in an environment full of regulations and limitations of how, when and where to extract. City Houston TX has minimal political interference making it a good state to invest from.

For retail investment, an investor simply uses their trusted brokers and purchases stock. These stocks are characterized with low dividend payout and they also have slow growth rate compared to other forms of shares. The stocks here are more exposed to risks such as political risk, this is because the political class influence market prices.

This is due to prices of this commodity being inversely proportion to gas. When market prices of gas shoots up, their demand reduces leading to oil demand going up and eventually resulting to rise in price as the price of gas goes down to increase demand. The other advantage that traders get in this venture is tax advantage. Tax advantage is especially common with limited partnership companies. A quarter of their returns in terms of dividend is not subject to taxation.

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